German Economy Shrinks for First Time Since 2013

A container ship sails in the HHLA Container Terminal Tollerort as shipping cranes stand on the dockside beyond at the Port of Hamburg in Hamburg, Germany. Net trade subtracted from GDP as imports outpaced exports, while private and public consumption rose. Photographer: Jasper Juinen/Bloomberg

(Corrects headline in story dated Aug. 14 to show German
statistics office revised 2013 GDP data.)

Aug. 14 (Bloomberg) -- Germany’s economy contracted more
than economists forecast last quarter and France stagnated,
adding to pressure on the euro area as the Ukraine crisis and
slowing inflation threaten to derail the region’s recovery.

Gross domestic product in the Germany, the currency bloc’s
largest economy, fell 0.2 percent from the first quarter, when
it rose a revised 0.7 percent, the Federal Statistics Office in
Wiesbaden said today. Economists forecast a contraction of 0.1
percent, according to the median of 37 estimates in a Bloomberg
News survey. Data earlier today showed the French economy, the
region’s second-largest, posted zero growth in the period,
compared with a median estimate for a 0.1 percent gain.

While Germany’s second-quarter weakness was largely due to
a warm winter that shifted production to earlier months, the
outlook is now clouded by Russia’s territorial dispute with
Ukraine. That imperils the euro area as a whole, where Italy has
already returned to recession and inflation is running at the
slowest pace since 2009.

“Demand for German industry goods in the euro zone and in
emerging markets has decreased strongly and we expect a
relatively weak third quarter,” said Stefan Muetze, an
economist at Helaba in Frankfurt. “After this, we expect an
increase in dynamism and more growth toward the end of the
year.”

German construction investment “clearly” shrank last
quarter because of the extremely mild winter, the statistics
office said. Net trade subtracted from GDP as imports outpaced
exports, while private and public consumption rose.

Euro-area GDP growth probably slowed to 0.1 percent in the
second quarter from 0.2 percent in the first three months of the
year, according to a separate Bloomberg survey. That report is
due from the European Union’s statistics office in Luxembourg at
11 a.m. today. Austria and the Netherlands are scheduled to
report national figures before then.

The Frankfurt-based Bundesbank predicted in June that the
German economy will expand 1.9 percent this year and 2 percent
in 2015. Bundesbank President Jens Weidmann told Phoenix TV this
week that he’s sticking “more or less” to those forecasts,
while saying the Ukraine crisis could weigh on the outlook.

The EU agreed last month to curb Russia’s access to bank
financing and advanced technology in its widest-ranging
sanctions yet over the country’s support of separatist militias
in Ukraine. Germany is Russia’s biggest European trading
partner.

Dusseldorf-based Rheinmetall AG reduced its 2014 profit
forecast after the German government blocked a contract to build
a military training center east of Moscow. Fraport AG, the
operator of Frankfurt’s airport, cut its retail outlook after
the number of Russians departing Europe’s third-busiest hub fell
3.8 percent in the first half.

A gauge of investor confidence in Germany fell this month
to the lowest level since 2012. Factory orders slumped in June
by the most in more than 2 1/2 years, with the Economy Ministry
citing political tension as one reason.

The crisis in eastern Europe comes as the euro area
struggles to recover from its longest-ever recession, which
ended last year. Inflation in the currency bloc was 0.4 percent
in July, and has been stuck at less than half the European
Central Bank’s goal of just below 2 percent since October.
Italy, the region’s third-largest economy, has recorded a second
straight quarter of contraction.

ECB President Mario Draghi has called for countries to
implement structural reforms, saying last week that nations that
have done so are recovering faster. Spain’s economy expanded
last quarter at its quickest pace since 2007, beating Germany
for the first time in five years. Greece’s economy contracted at
its slowest pace in almost six years.

Draghi also warned that “heightened” political risks
could affect the region’s “weak” recovery. The central bank
announced an unprecedented package of stimulus measures in June,
including a negative deposit rate and targeted loans for banks,
that will take time to work through to the real economy.